Selling Your Business: The risks arising from derisking

THE need for financial institutions to derisk themselves from exposure to deals is making transaction activity far more complex, an expert dealmaker has said.

All this week, TheBusinessDesk.com, in association with Coutts and Higgs & Sons, is looking at the pros and cons of selling a business and whether now is the right time to act.

Nick Taylor, head of corporate at Higgs & Sons, said the troubles in the global economy were providing an uncertain time for business owners looking to buy or sell.

“In these unpredictable times, when there may not necessarily be a massive competitive tension in the marketplace, appetite and multiples typically reduce,” he said.

“Buyers are generally nervous about taking risks and the many foreign buyers who are looking to enter the UK market are keen to get the best possible deal.”

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He said earn-out and deferred arrangements were now commonplace in corporate transactions, so good visibility on earnings was crucial to a successful sale.

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“The structure of a typical sale transaction is now much more complicated,” he added.

“Buyers and sellers are looking to derisk themselves and the concept of the apportionment of business risks between buyers and sellers continues to play a key part in the sale process that needs careful management. Warranties and indemnities in the main sale agreement are often now negotiated more than ever.”

He said his firm’s experience was that although banks, VCs and other financial buyers continued to look to invest in or fund good quality, profitable businesses, they would also look to eliminate any risk in doing so and negotiate hard. Therefore, good preparation was paramount.

“Funding can also take longer to come through. Many businesses are looking to consolidate and build turnover and to achieve efficiency savings where organic growth can be more difficult, so there are opportunities out there,” he said.

“The sale process itself can have a detrimental effect on the operation of a business and needs to be carefully managed. Establishing key objectives from the sale, to include sale and exit dates, net sale proceeds and continuity for employees is vital in ensuring a successful outcome.”

“Preparation for this process is key and owners should spend the necessary time giving this proper consideration well in advance. Advisers with a wealth of experience in corporate transactions and an in-depth awareness of the market are a necessity for anyone looking to sell their business,” he added.

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